A Company with a Tax Rate of 32% Is Planning

question 162

Multiple Choice

A company with a tax rate of 32% is planning to acquire a $86 000 asset that has a 30% CCA rate.The company may purchase the asset or lease it. The cost of borrowing is 10%. The prospectivelessor has a 40% tax rate and a 6.5% cost of capital. Which of the following statements is correct about the present value of the tax shield on the CCA to the lessor compared to the present value of the tax shield to the lessee?

• A) The value to the lessee is 126% of the value to the lessor
• B) The value to the lessee is 96% of the value to the lessor
• C) The value to the lessor is 105% of the value to the lessee
• D) The value to the lessor is 126% of the value to the lessee

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Definitions:

Commerce

The activity of buying and selling, especially on a large scale, encompassing trade and business transactions.

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Musicians and performers who create music within the hip-hop genre, a cultural movement characterized by rap, DJing, breakdancing, and graffiti.

Subculture

A subgroup within a broader society that holds different beliefs or interests from the main cultural body.

Distinctive Dress

The specific style of clothing that identifies individuals as members of a particular group, culture, or profession.